Enrico Letta looks set to become the new Italian Prime Minister after being asked to form a government by president Giorgio Napolitano.

The 46-year-old nephew of former Prime Minister Silvio Berlusconi's long-time chief of staff Gianni Letta, would be the youngest Italian Prime Minister in 25 years.

The formation of a government would bring an end to two months of political impasse in Italy after an inconclusive election back in February.

The new government, which could take
office in a matter of days, would be backed primarily by the rival
centre-left and centre-right groupings, which had refused to cut a deal
in the wake of the election.

Leader in waiting: Giorgio Napolitano, left, has called on Enrico Letta, right, to form a government in Italy

Letta, deputy leader of the Democratic Party (PD), is considered a moderate and is close to former party leader Pier Luigi Bersani, who resigned at the weekend after rebels sabotaged him in the voting for a new president, which ended with Napolitano being re-elected.

Letta said yesterday that his party would back any government committed to tackling the 'social-economic emergency' and enacting serious political reform, including changes to a dysfunctional electoral law considered largely responsible for the two-month long political stalemate.

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In February's general election, the centre-left narrowly won a majority in the lower house but failed to win control of the Senate and was not able to form a government.

Hopes that the deadlock would soon be over have given a further boost to financial markets, with the yield on 10-year Italian government bonds dropping below four percent and the spread, or risk premium, over German bonds narrowing.

Breakthrough: Enrico Letta talks to the press after meeting with President Napolitano where he was asked to form a government and end the country's political deadlock

Italy's economy has been the most sluggish in Europe for more than a decade and mired in a deep recession since the middle of 2011, with no recovery in sight.

Former Prime Minister Berlusconi's People of Freedom (PDL) party, Letta's PD and the centrist Civic Choice movement of outgoing premier Mario Monti have all said they will cooperate with whomever Napolitano chooses.

Outgoing: Former Prime Minister Mario Monti has said that he would co-operate with whoever the President picked as his replacement

Mr Berlusconi said after meeting Napolitano: 'Given the crisis the country finds itself in, the country needs a strong, a durable government that can make important decisions.'

Napolitano hit out at Italy's political parties on Monday when he was inaugurated for an unprecedented second term, berating them for their 'irresponsibility' in prolonging the political stalemate for nearly two months.

He threatened to resign unless the parties agreed to cooperate and find some middle ground on reforms.

Letta's party has been most hurt by the political impasse and the stability of the next government could be threatened given the hostility among many in the party to any deal with Berlusconi, their enemy for almost two decades.

Deep internal divisions worsened when former PD leader Mr Bersani was unable to make a government deal with either Berlusconi's centre-right or the shock new third political force, Beppe Grillo's 5-Star Movement.

And Mr Berlusconi has capitalised on the centre-left's woes. One poll gave the centre-right a clear lead of around eight points.

The anti-establishment 5-Star Movement, which won a quarter of the vote and speaks for millions of Italians disillusioned with an entire political class, told Mr Napolitano it would sit in opposition and may support specific reforms.

The Left Ecology Freedom party (SEL), a partner of the PD in the February election, and Berlusconi's allies in the Northern League also said they would not join a coalition led by Mr Amato.

All smiles: Silvio Berlusconi has capitalised on the damage the political impasses has caused to the centre-left with one opinion poll showing the centre right eight points ahead